Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
26 February 2016Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IASB Exposure Draft ED/2015/8 IFRS Practice Statement:
Application of Materiality to Financial StatementsThe Hong Kong Institute of Certified Public Accountants is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing and ethicsfor professional accountants, in Hong Kong. We are grateful for the opportunity toprovide you with our comments on this Exposure Draft.We support the issuance of non-mandatory guidance on materiality in the form of aPractice Statement. In general, we consider that the draft Practice Statement wouldprovide useful guidance and practical examples for preparers to determine how toexercise judgement when assessing materiality of financial information. Therefore, weagree that the Practice Statement should be issued without waiting for the completionof the Principles of Disclosure project.Nevertheless, we have suggested improvements in the Appendix of this letter thatwould clarify the proposed content and examples in the Practice Statement. Inparticular, adding application guidance and/or examples that illustrate how thedecisions to omit immaterial information from the financial statements, and howmateriality affects the extent of qualitative disclosures, would be very useful in thecontext of exercising judgement.Our responses to the questions raised in this Exposure Draft are explained in moredetail in the Appendix.If you have any questions regarding the matters raised in this letter, please contact meorEkyLiu,AssociateDirectoroftheStandardSettingDepartment(eky@hkicpa.org.hk).Yours sincerely,Christina NgHead of Financial ReportingAppendixPage 2 of 5Detailed comments on IASB ED/2015/8 IFRS Practice Statement: Application ofMateriality to Financial StatementsQuestion 1 – Form of the guidance(a) Do you think that the guidance should be issued as non-mandatory guidance?Why or why not?(b) Do you think that a Practice Statement is the appropriate form for non-mandatory guidance on applying the concept of materiality? Why or why not?If not, what alternative(s) do you propose and why?We support the issuance of non-mandatory guidance on the application of materialityin the form of a Practice Statement. In arriving at this conclusion, we considered andagreed with the rationale set out in paragraphs BC11–BC15 of ED/2015/8.Question 2 – Illustrative examplesDo you find the examples helpful in the [draft] Practice Statement? Do you thinkany additional practical examples should be included? If so, what scenariosshould the examples address?We consider that the illustrative examples in the draft Practice Statement are helpful.However, we suggest that the IASB provides additional practical examples in thePractice Statement to illustrate the application of materiality in the following areas:
․Most of the examples in the draft Practice Statement illustrate the decisions toinclude information in the financial statements based on the factors set out in thedraft Practice Statement. We consider that the Practice Statement shouldillustrate decisions to include and to omit information from the financial statements.Examples that illustrate the decisions to omit immaterial information from thefinancial statements should be added to the Practice Statement so as not to over-emphasise on the need to provide disclosures.․Paragraph 54(b) illustrates a scenario where an entity can consider aggregatingsome of the prior year information in the comparative reconciliation for the currentyear financial statements if there are only limited changes in the current year. Wewould like to clarify whether, on the flipside, an entity should disaggregate thecomparative information that was immaterial if the amount in the current yearbecomes material and is separately disclosed.As an example, paragraph 18 of IFRS 8 Operating Segments requires an entity torestate its comparative segment information to separately reflect a newlyreportable segment. However, it is unclear whether this requirement should begenerally applied to disclosures outside of IFRS 8. Therefore, we suggest that theIASB clarifies, by providing an example that illustrates whether restatement ofimmaterial comparative figures is necessary when the amount in the current yearis material.AppendixPage 3 of 5․The examples in paragraphs 27 and 28 of the draft Practice Statement illustratehow management should consider the qualitative aspect of the information whenassessing materiality. We recommend that the IASB includes an additionalexample that illustrates whether an item that is immaterial in amount but materialin nature should be disclosed separately, e.g. fines or penalties paid/payable as aresult of breach of legislation.․Paragraphs 59 and 60 of the draft Practice Statement only reproduce the relevantrequirements about assessments of materiality in IAS 34 Interim FinancialReporting. It would be more useful to provide guidance and examples to illustratehow those requirements apply in practice. For example, the IASB could addpractical examples to clarify whether:
i. an item that is material during the interim period, but immaterial to the annualfinancial statements, should be disclosed only in the interim financialstatements or in both interim and annual financial statements.ii. an item that is immaterial during the interim period, but expected to be materialto the annual financial statements, should be disclosed only in the annualfinancial statements, or both.Question 3- Content of the [draft] Practice Statement(a) Do you think that any additional content should be included in the PracticeStatement? If so, what additional content should be included and why?(b) Do you think the guidance will be understandable by, and helpful to,preparers of financial statements who have a reasonable level ofbusiness/accounting knowledge and IFRS? If not, which paragraphs/sectionsare unclear or unhelpful and why?(c) Are there any paragraphs/sections with which you do not agree? If so, whichparagraphs/sections are they and why?(d) Do you think any paragraphs/sections are unnecessary? If so, whichparagraphs/ sections are they and why?(e) Do you think any aspects of the guidance will conflict with any legalrequirements related to materiality within your jurisdiction, or a jurisdiction inwhich you file financial statements?We consider that the Practice Statement is helpful to, and understandable by,preparers of financial statements.However, in terms of the content of the Practice Statement, we recommend thefollowing improvements:
․ Adding examples of exercising judgement when preparing qualitative disclosuresThe draft Practice Statement contains guidance and examples that mainly focus onthe application of materiality on quantitative disclosures. We note that in practice,there are also problems with qualitative disclosures, that is, they are either tooexcessive or too little. In particular, boilerplate information is often found in thefollowing disclosures:
i.Financial risk management objectives and policies, and the various riskanalyses under IFRS 7 Financial Instruments: Disclosures;
AppendixPage 4 of 5ii.Objectives, policies and processes for capital management as required byIAS 1 Presentation of Financial Statements; andiii.Significant judgements and major sources of estimation uncertainty underIAS 1.We think that different types and sizes of entities are exposed to different levels offinancial risks. Entities are expected to disclose detailed risk analyses if the risksthat they are exposed to are material to the entities. For entities with low financialrisks, the information disclosed is expected to be less detailed and, in some cases,may not even be necessary. Likewise, entities with foreign operations would besubject to a higher foreign currency risk than a company with only local operations,and hence those entities would disclose its foreign currency risk management andanalyses in greater detail.We therefore recommend that the IASB adds application guidance and examplesthat illustrate how materiality affects the extent of qualitative disclosures.․ Adding references to relevant accounting standardsReferences to relevant accounting standards should be added to the illustrativeexamples in paragraphs 54 and 55 of the Practice Statement so that readers knowwhich accounting standards they should refer to for the disclosure requirements inthe examples. For example, reference to IAS 16 Property, Plant and Equipmentshould be added in the scenario illustrated in paragraph 54(b) of the PracticeStatement.․ Clarifying the proposed illustrative examplesParagraphs 54 and 55 illustrate how materiality is assessed by reference to thecurrent and prior year financial statements. However, the examples provided inthese two paragraphs do not clearly illustrate the extent of disclosures that areconsidered sufficient for users of financial statements for decision-making.Therefore, we recommend that the IASB adds the following additional guidance:
i. In paragraph 54(a), the IASB should explain what disclosures about a prioryear's business combination is needed in the current year's financial statementsso that sufficient information is provided for comparison and for theunderstanding of the current period financial statements.ii. In paragraph 54(b), the IASB should clarify in the example what information canbe aggregated in the reconciliation. Paragraph 54(b) states that it may beappropriate to aggregate 'some of the information' that was presentedseparately in the prior year reconciliation of property, plant and equipmentwhen preparing comparative information for the current period financialstatements if there have been limited changes in the current period. Theexample does not clearly explain the meaning of 'some of the information' thatcan be aggregated. We think that this could lead to conflict with paragraph 73(e)
of IAS 16, which specifies the items that are required in a reconciliation ofproperty, plant and equipment.iii. In paragraph 55(a), the IASB should elaborate further how information about aprior year business combination might be material in the current period if it canAppendixPage 5 of 5explain the effects of current period adjustments arising from that businesscombination. The IASB could provide examples to indicate the nature ofadditional information about prior year business combination in this case.․ Explaining the reasons for including practical expedients on internal record keepingproceduresWe find it strange to include practical expedients on internal record keepingprocedures for recognition and measurement assessment in paragraphs 63-66 ofthe draft Practice Statement. In addition, no such practical expedients are includedin any of the IFRS. The IASB should explain the objective of these paragraphsmore clearly in the basis for conclusions to the Practice Statement.Question 4 – Timing of issuanceThe IASB plans to issue the Practice Statement before the finalisation of itsPrinciples of Disclosure project.The IASB has tentatively decided to include a discussion on the definition ofmateriality, and whether there is a need to change or clarify that definition withinIFRS, in the Discussion Paper for its Principles of Disclosure project (expectedto be issued early in 2016).The IASB does not envisage that the discussion about the definition ofmateriality or any other topics in its Principles of Disclosures project willsignificantly affect the content of the Practice Statement. Nevertheless, the IASBwill consider whether any consequential amendments to the Practice Statementare necessary following the completion of the Principles of Disclosures project.Do you agree with this approach?We support the IASB's decision to issue the Practice Statement before the finalisationof its Principles of Disclosure (PoD) project as the project is in its infancy and the IASBonly aims to issue the PoD discussion paper in the first half of 2016. We think thatwaiting for the completion of the PoD project will unduly delay the provision of usefulguidance.Nevertheless, we recommend that the IASB closely monitors the results of the PoDproject and other ongoing projects, such as the Conceptual Framework, and updatesthe Practice Statement on a timely basis.~ End ~
IASB Exposure Draft ED/2015/8 IFRS Practice Statement:Application of Materiality to Financial Statements
下载原件Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
26 February 2016Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IASB Exposure Draft ED/2015/8 IFRS Practice Statement:
Application of Materiality to Financial StatementsThe Hong Kong Institute of Certified Public Accountants is the only body authorised bylaw to set and promulgate standards relating to financial reporting, auditing and ethicsfor professional accountants, in Hong Kong. We are grateful for the opportunity toprovide you with our comments on this Exposure Draft.We support the issuance of non-mandatory guidance on materiality in the form of aPractice Statement. In general, we consider that the draft Practice Statement wouldprovide useful guidance and practical examples for preparers to determine how toexercise judgement when assessing materiality of financial information. Therefore, weagree that the Practice Statement should be issued without waiting for the completionof the Principles of Disclosure project.Nevertheless, we have suggested improvements in the Appendix of this letter thatwould clarify the proposed content and examples in the Practice Statement. Inparticular, adding application guidance and/or examples that illustrate how thedecisions to omit immaterial information from the financial statements, and howmateriality affects the extent of qualitative disclosures, would be very useful in thecontext of exercising judgement.Our responses to the questions raised in this Exposure Draft are explained in moredetail in the Appendix.If you have any questions regarding the matters raised in this letter, please contact meorEkyLiu,AssociateDirectoroftheStandardSettingDepartment(eky@hkicpa.org.hk).Yours sincerely,Christina NgHead of Financial ReportingAppendixPage 2 of 5Detailed comments on IASB ED/2015/8 IFRS Practice Statement: Application ofMateriality to Financial StatementsQuestion 1 – Form of the guidance(a) Do you think that the guidance should be issued as non-mandatory guidance?Why or why not?(b) Do you think that a Practice Statement is the appropriate form for non-mandatory guidance on applying the concept of materiality? Why or why not?If not, what alternative(s) do you propose and why?We support the issuance of non-mandatory guidance on the application of materialityin the form of a Practice Statement. In arriving at this conclusion, we considered andagreed with the rationale set out in paragraphs BC11–BC15 of ED/2015/8.Question 2 – Illustrative examplesDo you find the examples helpful in the [draft] Practice Statement? Do you thinkany additional practical examples should be included? If so, what scenariosshould the examples address?We consider that the illustrative examples in the draft Practice Statement are helpful.However, we suggest that the IASB provides additional practical examples in thePractice Statement to illustrate the application of materiality in the following areas:
․Most of the examples in the draft Practice Statement illustrate the decisions toinclude information in the financial statements based on the factors set out in thedraft Practice Statement. We consider that the Practice Statement shouldillustrate decisions to include and to omit information from the financial statements.Examples that illustrate the decisions to omit immaterial information from thefinancial statements should be added to the Practice Statement so as not to over-emphasise on the need to provide disclosures.․Paragraph 54(b) illustrates a scenario where an entity can consider aggregatingsome of the prior year information in the comparative reconciliation for the currentyear financial statements if there are only limited changes in the current year. Wewould like to clarify whether, on the flipside, an entity should disaggregate thecomparative information that was immaterial if the amount in the current yearbecomes material and is separately disclosed.As an example, paragraph 18 of IFRS 8 Operating Segments requires an entity torestate its comparative segment information to separately reflect a newlyreportable segment. However, it is unclear whether this requirement should begenerally applied to disclosures outside of IFRS 8. Therefore, we suggest that theIASB clarifies, by providing an example that illustrates whether restatement ofimmaterial comparative figures is necessary when the amount in the current yearis material.AppendixPage 3 of 5․The examples in paragraphs 27 and 28 of the draft Practice Statement illustratehow management should consider the qualitative aspect of the information whenassessing materiality. We recommend that the IASB includes an additionalexample that illustrates whether an item that is immaterial in amount but materialin nature should be disclosed separately, e.g. fines or penalties paid/payable as aresult of breach of legislation.․Paragraphs 59 and 60 of the draft Practice Statement only reproduce the relevantrequirements about assessments of materiality in IAS 34 Interim FinancialReporting. It would be more useful to provide guidance and examples to illustratehow those requirements apply in practice. For example, the IASB could addpractical examples to clarify whether:
i. an item that is material during the interim period, but immaterial to the annualfinancial statements, should be disclosed only in the interim financialstatements or in both interim and annual financial statements.ii. an item that is immaterial during the interim period, but expected to be materialto the annual financial statements, should be disclosed only in the annualfinancial statements, or both.Question 3- Content of the [draft] Practice Statement(a) Do you think that any additional content should be included in the PracticeStatement? If so, what additional content should be included and why?(b) Do you think the guidance will be understandable by, and helpful to,preparers of financial statements who have a reasonable level ofbusiness/accounting knowledge and IFRS? If not, which paragraphs/sectionsare unclear or unhelpful and why?(c) Are there any paragraphs/sections with which you do not agree? If so, whichparagraphs/sections are they and why?(d) Do you think any paragraphs/sections are unnecessary? If so, whichparagraphs/ sections are they and why?(e) Do you think any aspects of the guidance will conflict with any legalrequirements related to materiality within your jurisdiction, or a jurisdiction inwhich you file financial statements?We consider that the Practice Statement is helpful to, and understandable by,preparers of financial statements.However, in terms of the content of the Practice Statement, we recommend thefollowing improvements:
․ Adding examples of exercising judgement when preparing qualitative disclosuresThe draft Practice Statement contains guidance and examples that mainly focus onthe application of materiality on quantitative disclosures. We note that in practice,there are also problems with qualitative disclosures, that is, they are either tooexcessive or too little. In particular, boilerplate information is often found in thefollowing disclosures:
i.Financial risk management objectives and policies, and the various riskanalyses under IFRS 7 Financial Instruments: Disclosures;
AppendixPage 4 of 5ii.Objectives, policies and processes for capital management as required byIAS 1 Presentation of Financial Statements; andiii.Significant judgements and major sources of estimation uncertainty underIAS 1.We think that different types and sizes of entities are exposed to different levels offinancial risks. Entities are expected to disclose detailed risk analyses if the risksthat they are exposed to are material to the entities. For entities with low financialrisks, the information disclosed is expected to be less detailed and, in some cases,may not even be necessary. Likewise, entities with foreign operations would besubject to a higher foreign currency risk than a company with only local operations,and hence those entities would disclose its foreign currency risk management andanalyses in greater detail.We therefore recommend that the IASB adds application guidance and examplesthat illustrate how materiality affects the extent of qualitative disclosures.․ Adding references to relevant accounting standardsReferences to relevant accounting standards should be added to the illustrativeexamples in paragraphs 54 and 55 of the Practice Statement so that readers knowwhich accounting standards they should refer to for the disclosure requirements inthe examples. For example, reference to IAS 16 Property, Plant and Equipmentshould be added in the scenario illustrated in paragraph 54(b) of the PracticeStatement.․ Clarifying the proposed illustrative examplesParagraphs 54 and 55 illustrate how materiality is assessed by reference to thecurrent and prior year financial statements. However, the examples provided inthese two paragraphs do not clearly illustrate the extent of disclosures that areconsidered sufficient for users of financial statements for decision-making.Therefore, we recommend that the IASB adds the following additional guidance:
i. In paragraph 54(a), the IASB should explain what disclosures about a prioryear's business combination is needed in the current year's financial statementsso that sufficient information is provided for comparison and for theunderstanding of the current period financial statements.ii. In paragraph 54(b), the IASB should clarify in the example what information canbe aggregated in the reconciliation. Paragraph 54(b) states that it may beappropriate to aggregate 'some of the information' that was presentedseparately in the prior year reconciliation of property, plant and equipmentwhen preparing comparative information for the current period financialstatements if there have been limited changes in the current period. Theexample does not clearly explain the meaning of 'some of the information' thatcan be aggregated. We think that this could lead to conflict with paragraph 73(e)
of IAS 16, which specifies the items that are required in a reconciliation ofproperty, plant and equipment.iii. In paragraph 55(a), the IASB should elaborate further how information about aprior year business combination might be material in the current period if it canAppendixPage 5 of 5explain the effects of current period adjustments arising from that businesscombination. The IASB could provide examples to indicate the nature ofadditional information about prior year business combination in this case.․ Explaining the reasons for including practical expedients on internal record keepingproceduresWe find it strange to include practical expedients on internal record keepingprocedures for recognition and measurement assessment in paragraphs 63-66 ofthe draft Practice Statement. In addition, no such practical expedients are includedin any of the IFRS. The IASB should explain the objective of these paragraphsmore clearly in the basis for conclusions to the Practice Statement.Question 4 – Timing of issuanceThe IASB plans to issue the Practice Statement before the finalisation of itsPrinciples of Disclosure project.The IASB has tentatively decided to include a discussion on the definition ofmateriality, and whether there is a need to change or clarify that definition withinIFRS, in the Discussion Paper for its Principles of Disclosure project (expectedto be issued early in 2016).The IASB does not envisage that the discussion about the definition ofmateriality or any other topics in its Principles of Disclosures project willsignificantly affect the content of the Practice Statement. Nevertheless, the IASBwill consider whether any consequential amendments to the Practice Statementare necessary following the completion of the Principles of Disclosures project.Do you agree with this approach?We support the IASB's decision to issue the Practice Statement before the finalisationof its Principles of Disclosure (PoD) project as the project is in its infancy and the IASBonly aims to issue the PoD discussion paper in the first half of 2016. We think thatwaiting for the completion of the PoD project will unduly delay the provision of usefulguidance.Nevertheless, we recommend that the IASB closely monitors the results of the PoDproject and other ongoing projects, such as the Conceptual Framework, and updatesthe Practice Statement on a timely basis.~ End ~